South Korea‘s auto industry has been backtracking on high cost and low productivity triggered by continuing labor disputes, CEOs of carmakers and partmakers said Tuesday.

At a seminar held by Korea Automobile Manufacturers Association, the profit structure of the industry has been deteriorating due to rising labor costs despite the country suffers from declining auto production and exports. The escalating tension between the management and the labor over pay raises has made not only Korean carmakers, but also foreign carmakers reluctant on making investments, they added.

Kia Motors CEO Park Han-woo, in particular, expressed concerns over a court ruling on workers‘ demand to recognize their bonuses as part of their ordinary wages.

If the court rules in favor of the workers, Kia might have to pay 50 percent more than now, he said, adding that he is more worried about the future of the company.

If the court orders the company to redefine its base pay, similar regular wage recalculation lawsuits are forecast to be filed against companies throughout all industries, the industry expects.

The seminar was held amid mounting concerns on South Korean auto industry suffering from a triple crisis. KAMA said that the sales and produce of the Korean automotive industry continued to decrease over the last two years. In 2016, overseas exports declined by 11.8 percent and by 1 percent in the first quarter this year. The production in 2016 also decreased by 7.2 percent and 1.5 percent this year.

Outbound shipments of auto parts produced in the country this year also declined by 5.8 percent on-year, the data showed.

KAMA President Kim Yong-geun said the overall industry would suffer if the nation‘s major car manufacturing companies continue to go through such downfall.

Lee Ji-man, a management professor at Yonsei University, also said that it is difficult for the companies to increase research and development spending if disputes between management and labor continue to persist. Proper measures to tackle the current wage issue need to take place, he added.

The combined amount of R&D spending of Hyundai Motors and Kia Motors in the last year reached $3.4 billion, according to data compiled by KAMA, compared to $9.5 billion of Toyota and $15.1 billion of Volkswagen.

Meanwhile, the average income of workers at the nation‘s five major car manufacturers in 2016 reached 92.13 million won, which is higher than that of Volkswagen, 80.4 million won and Toyota’s 91.04 million won.

During the same period, Korea‘s five major carmakers’ average spending on wages accounted for 12.2 percent of their sales volume, also higher than Volkswagen and Toyota, at 9.5 percent and 7.8 percent, respectively. 

By Shim Woo-hyun (ws@heraldcorp.com)